Professor: Faisal Ruben Harahap
Chapter 15 Question 14
What are some of the limitations of the national income accounts in how they represent our standard of living?
The problem is that that looking at national income accounts only give us an idea of the quantitative arena of the standard of living of a given region and not the qualitative arena of their life. For example, those income accounts will give us an idea of the amount of money that each family has on average and per capita. However, they do not give an idea of the areas that deal with the quality of life. What are the schools like (education)? What is the life expectancy for that location? There may be two countries that have similar income levels on average but one country has a much higher level of education and life expectancy for their country as opposed to the other one. Even though they have similar income levels and GNP measures, you could argue that one country still has a far better standard of living due to the non-monetary aspects (education and life expectancy).
Chapter 16 Question 6
Explain why hyperinflation has such a devastating impact on economies. Explain what it takes to stop hyperinflation.
Hyperinflation has a devastating effect on economies for two reasons. Firstly, one function of money is a store of value. Hyperinflation destroys this stored value making people less well off. If people lose all stored value, they are unable to consume or invest nearly as much because they have much less wealth than before. Secondly, prices carry information. Worrying about the volatility of prices increases the cost of economic transactions since the current value of currency must be taken into account. Great effort is required to keep up with prices that change hourly.